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Comment by programjames | Hacker News Reader

> Something that surprisingly few people have mentioned recently is that having the biggest trade deficit is the same thing as being the global reserve currency.

Can you explain this a little more? Why does having a trade deficit make your currency more valuable? My naive assumption is it would put more dollars in other countries, so they don't need them as much, making dollars less valuable.

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Other counties need dollars to settle their international trade (particularly oil but practically a lot more), and to hold in reserve. The dollar is actually the only currency that's been printed enough to serve this purpose alongside its other benefits. This demand for dollars makes the US less attractive to import from as the price of the dollar is driven up by this extra demand.

Having the global reserve currency is another way of saying other countries have a lot of your currency.

Having a huge trade deficit is another way of saying you've sent a lot of your currency to other countries and haven't received it back yet.

I'm sure you can see how those are the same thing.

US is the alpha consumer. If you can sell in the US, you won. You want to sell in the US. You get dollars for what you sell in the US and since everyone else also wants to sell in the US, you trade with everybody using dollars. Also, your government goes batshit crazy statistically more often than the US, so your currency risk is smaller if you're settling trade in dollars.

"Why does having a trade deficit make your currency more valuable?"

Its the other way around, having the reserve currency drives demand for it and therefore imports are cheap and budgetary deficits are free (since interest rates are low).

You get free stuff and free debt, but over time your industry collapses

Your currency being valuable increase imports!

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